By converting your mortgage into a tax-deductible loan, you are turning the interest into a tax deduction. When you subtract that deduction from your income, you get a tax refund.
That refund is free money. You don’t have to invest any of your own income or increase your debt to get the tax refund. The refund you receive from investing in RRSPs is not free money. You pay for your RRSP by using your own after-tax income to buy the tax refund.
Debt is good when it is tax-deductible. It is bad when it’s the wrong kind of debt – the kind that is not deductible against your income. Bad debt can be converted to good debt if you employ The Smith Manoeuvre.
Wealthy people have debt, and they like it that way. They use their after-tax cash for toys and holidays. However, they borrow to invest and deduct the interest on those investment loans.
That’s called “good debt” and it’s how the rich become richer. If you have house mortgage debt, it is the wrong kind of debt until you convert it to tax-deductible debt.
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